To Stay Or Go Away In May?

Sell in May and go away? Don't be too taken in by glib phrases, particularly in a year where so many amazing events have occurred.

If you think the markets are going to fall apart in the next four months, why are traders frantically covering their short positions? Someone isn't very enamored with this theory.

Sell in May and go away involves getting out of the markets in the late spring and into the summer. Biriyni, however, points out that from 1962 to 2008 the S&P 500 was down only 51% of the time (May to August).

Things change, though, when you look at what happened during that period in a bull or a bear market.

In bull markets:

-S&P up 60% of time

-Average gain: 3.1%

In bear market:

-S&P down 83% of time

-Average decline: 7.1%

In other words, the summer continued the trend.

So are we in a bull or bear market right now? That is still unclear.

One other point: there has been a successful trade (for many years) around buying the S&P 500 from November to the end of April, then selling. This trade was highlighted by Jeff Hirsch and the Stock Trader's Almanac.

Unfortunately, even that trade hasn't been successful recently. Jeff Hirsch noted to me that so far this best six months buy (buy Nov. 1, sell April 30) is down 12% since Oct. 31. We also had a negative best six months (Oct 07-April 08) the year before that. The last time that happened was 1973-74.